S&P 500 Faces Major Test as Trade War and Tariffs Fuel Market Wobble

After Trump’s new tariffs, markets are on edge—again.
But with the S&P 500 testing critical support, a rebound might still be possible.
Meanwhile, gold shines as the only real safe haven amidst the chaos.
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For a moment yesterday, it looked like calm had returned to the market as there was a glimmer of hope around the US-China trade negotiations. Donald Trump had hinted he’s open to talks, suggesting that China as well as several other nations are eager to ink deals. But later in the session, that optimism quickly turned to pessimism as the US pressed ahead with those reciprocal tariffs and imposed 104% levies on Chinese goods arriving to the US.

Today, China retaliated again and increased tariffs on US goods arriving in China to 84%. In response, stocks fell further, and prices plunged to $55. Safe haven gold rallied. The direction thus remains highly uncertain as the index tests a major support zone between 4800 to 4885.

Before discussing the macro factors influencing the markets further, let’s first look at the chart of the S&P 500, which is testing a major support area…

S&P 500 Testing Major Support

From a technical point of view, the S&P 500 forecast could turn modestly bullish if we now see some bullish price action around the major support zone between 4800 to 4885 the index was testing at the time of writing.Source: TradingView.com

Here, we have several technical factors coming into play. The lower end of this zone marks the highs from 2022 (4817) and 2023 (4795), which alone makes it significant. We also have the bullish trend line derived from connecting major lows since the pandemic low, coming into play within this 4800-4885 zone, depending on how you draw those trend lines. What’s more, the 61.8% Fibonacci retracement level (4884) against the October 2023-Febraury 2025 rally comes into play here.

All these technical factors have us on bullish alert, but the ball is Trump’s court. Does he want to save the market here or is he happy to let it slide further.

If we get a decisive break below this major support zone (of 4800-4885), then the selling could potentially extend to the 78.6% Fibonacci level at 4540.

If markets rebound from this support zone, then the first area of resistance to watch is between 5000 to 5090, with the upper end of this range marking the August 2024 low. Only if we go decisively above this zone, will the S&P chart turn decisively bullish in the short-term outlook.

Trade War Escalates – What Does This Mean for Investors?

So, the tit-for-tat trade dispute continues between the world’s largest economies. It is clear that the US wants to make a deal, but Trump’s ego is preventing him to make the call to open negotiations with China. He wants China to pick up the phone. While the standoff continues, investor, business and consumer sentiment are all taking a hit, and this pessimism is being reflecting in plunging asset prices.

Every time there has been progress and a step in the right direction, the Trump administration’s tough stance on tariffs have ultimately poured cold waters on any optimism. This is something I warned about earlier this week that we should not get carried away with anything positive Trump says, until there’s actual action. As always, the devil’s in the details—or the lack thereof in this case. We still have no idea what concessions he expects in return for lifting or easing tariffs.

Against this backdrop drop, traders are not confident to hold onto any risk positions and are forced to liquidate positions quicker than would otherwise be the case. This is why we saw trading volumes spike yesterday, where over 23 billion shares traded—an echo of peak pandemic-era stress.

Watch the Bond Markets as Gold Surges Again

With yields increasing, investors are no longer feeling safe in even the “risk free” asset that is government debt. They are demanding higher rates of return for the risk of lending money to the government or holding the government debt. Rising yields will also make it difficult for the Fed to intervene. So, investors are left with only gold as a true haven asset of choice in times like now. The price of gold has climbed to $3070+ after dipping below the $3000 mark earlier this week. The renewed upsurge underscores the metal’s haven appeal.

With policymakers pushed into a corner, there is a danger that the whole situation could get even worse. Trump and his team need to address this risk and move on with making deals quickly. Until that happens, volatility is going to remain elevated as the economic impact of tariffs, or the perceived risks thereof, bite.

Reciprocal Tariffs Go Live

The global selloff deepened after President Trump hiked US trade tariffs, as planned, to a 100-year high, jolting investors and further straining fragile sentiment. We saw a rush out of both stocks and bonds, which sent yields on 30-year Treasuries piercing 5% — the highest since November 2023. Government debt of other major global economies weren’t spared either: UK borrowing costs surged to their highest since 1998, and Japan’s 40-year bond yields hit a record.

In the FX space, extended its losses against haven currencies like the yen and franc, with the euro also doing relatively well, while risk sensitive commodity dollars fell.

US equity futures momentarily flickered green after China had hinted it was still open to talks, but the mood turned sour after Beijing retaliated again as they had promised. At the time of writing, US index futures were down between 1.2 to 2.0% lower.

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